TY  - JOUR
AU  - Bordo,Michael
AU  - Redish,Angela
TI  - Maximizing Seignorage Revenue During Temporary Suspensions of Convertibility: A Note
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4024
PY  - 1994
Y2  - January 1994
UR  - http://www.nber.org/papers/w4024
L1  - http://www.nber.org/papers/w4024.pdf
N1  - Author contact info:
Michael D. Bordo
Department of Economics
Rutgers University
New Jersey Hall
75 Hamilton Street
New Brunswick, NJ 08901
Tel: 732/822-7152
Fax: 732/932-7416
E-Mail: bordo@econ.rutgers.edu

Angela Redish
Dept. of Economics
University of British Columbia
#997 1873 East Mall
Vancouver BC V6T 1Z1 CANADA
E-Mail: anji@econ.ubc.ca
AB  - This note extends the theory of the revenue maximizing rate of monetary growth to the case of a temporary suspension of convertibility. It also suggests a methodology for the interpretation of monetary behavior during historical periods of inconvertibility. First we analyze the case of a government with a monopoly over currency issue. The government maximizes seignorage revenue by generating an inflation, but the terminal condition of a return to convertibility implies that the price level must drop at the point of suspension of convertibility, so that there is no discontinuity at the date of resumption. We then consider the behavior of a private banking system whose monetary liabilities are temporarily inconvertible. The model is then used to interpret monetary behaviour during the suspension of convertibility by U.S. banks in 1837/8.
ER  -